DocuSign IPO – Sign(ing) of the Times

They say in business that the riches are in the niches. DocuSign is the niche tech company that is headquartered in San Francisco and founded in 2003. On April 27th, 2018, DocuSign’s shares were made available for public purchase, and it has been one of the more successful tech IPOs so far this year. The company had an IPO price of $29 per share, and the stock has risen more than 37% since.

The ambitious aim of DocuSign is to replace paper signatures on contracts with its e-signature software solution.  The actual mechanics of signing a contract has long been an organizational pain point. Handling physical copies of paperwork and getting them to the correct parties can take days or weeks by snail mail. Nonetheless, organizations have been reluctant to change something as crucial as finalizing a contract for fear of making a costly mistake. In the early days, companies had many legal, security, and usability concerns regarding e-signature solutions like DocuSign. With the passage of time though, these concerns have primarily been addressed, and DocuSign has made these changes favorably.

Pulling Us Into A New Era

Today, DocuSign states it offers the world’s #1 e-signature platform. Its solutions are so ubiquitous that the company proudly says that its name is becoming a “verb.” Ironically, becoming a verb in the lexicon can in some instances famously cause a company to have its trademark revoked. Previously trademarked words include Asprin and Thermos, which ended up losing their trademark status when used as verbs too frequently. For DocuSign, its name becoming a verb is a badge of honor that it’s CEO Daniel Springer boasts about. Not something it shies away from embracing or some scary esoteric legal risk.

Organizations are adopting DocuSign’s e-signature platform to complete new hire paperwork, sign off on invoices, and approve purchase orders. The company also offers an eNotary solution for paperwork that must be notarized. eNotary is not provided in every state, but rather in those where it sees more widespread adoption including New York, Texas, Florida and Washington.

Building out the e-signature platform has not been cheap. The company has spent over $300 million in research & development since it’s inception. However, it’s an investment the company heavily credits for their growth. Uptime is crucial for the business, and to this end, it has had 99.99% service availability for customers worldwide with zero scheduled maintenance downtime over the past 2 years. Clients include enterprise software giant Salesforce, the National Association of Realtors (whose members get a discount), and Bank of America among other big names. Many small businesses also use the solutions, making Docusign genuinely unique in servicing enterprises ranging from small, medium to large.

The bulk of Docusign’s customers are in the US, with virtually all of them being in English-speaking countries with common-law legal systems. The company estimates that the total market for its e-signature solution at 25 billion dollars annually. That gives the company a less than 3% adoption rate, after posting $518M in annual revenues in (fiscal year ended) 2018. Given its leading market status, the company either has plenty of room to grow or is arguably overestimating the size of its total market opportunity depending on your perspective.

Key to Docusign’s growth is it’s API solution, which allows developers to “embed” the DocuSign signature solution into software created by third parties. Almost 60% of all transactions processed on DocuSign are through the API, and 50,000 developers “sandboxes” have been created. A sandbox is merely a system which allows for developers to test to make sure a system is working as expected before using it with actual customers.

What about the IPO?

Docusign’s IPO was well received and raised $542 million on April 27th when the stock went public. Despite its growth and the standard window dressing shoring up of finances before an IPO occurs, the company has not posted a yearly profit. The company had a net loss of $115M in 2017, and since it’s inception an accumulated deficit of $450M. On the bright side, the company saw it’s revenues grow 52% from 2016 to 2017 to a total of 381M. It increased taxes another 35% into fiscal 2018. That appears to be enough for Wall Street, at least for now.

Docusign is a company which as gone after a niche business few people even think about and turned it into a multi-hundred million dollar revenue machine in 15 years. The company’s growth has been impressive, and it’s value proposition straightforward. It is of a rare breed, a tech unicorn six times over. It deserves credit for its accomplishments, chief of all has helped pull us all into a more modern era.

Buy fractional shares of DocuSign through Stockpile here.

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Article Contributor: Mark Biwojno


This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stockpile assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell. There is no guarantee that any strategies discussed will be effective. Each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented.

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